Retirement village contracts can take many forms and the key terms will vary from village to village. For a summary of some of the ‘need to know’ basics for retirement village contracts, check out our e-brief.
Entering into a retirement village contract is an important financial and legal step – possibly second only to the purchase of your home. It is important to receive proper advice and understand your rights and obligations before signing the contract.
We have advised many people on retirement village contracts, and we would like to share a couple of stories with you.
A tale or two
Are you really ‘buying’ the unit?
One example of where we see people misunderstanding the contract is where they believe that they are ‘buying’ a unit in a retirement village. In many cases this is not true – you are merely receiving a licence to occupy the unit. Obviously there is quite a difference between paying a large sum of money to acquire the legal title to a home, as opposed to only gaining a right to occupy the property.
From a legal perspective, a licence cannot be registered on the title to the property, and does not give you the right to register a caveat to protect your interest in the unit and secure the village’s obligation to repay you when you vacate the unit.
Because we know and understand the retirement village legislation, we are able to ensure that a notice will be registered on the village’s title, creating a statutory charge against the property to better protect your rights in relation to the property.
Capital gain? Of course it’s mine!
Recently a client came in with one of their children, both of whom had met with a representative of the village operator and discussed all of the key terms of occupation. They were very happy with the commercial terms of the contract.
While going through the documentation with our client, it became clear that our client and her daughter were well aware of all the contract intricacies… until we got to the question of making a capital gain (or loss) on the sale of the property. Our client was of the view that because they were acquiring the property they were entitled to the capital gain on the sale of the property. However, that was not the case. The agreement provided that any capital gain was to be distributed 50/50 between the resident and the village operator. To make matters worse, any capital loss was to be borne solely by the resident.
Although the amount of money to be received at the end of our client’s occupation was not a big issue for our client or her children, it was important for our client to be completely aware of all of the details of the arrangement. We provided a letter of advice to our client, clearly recording the terms of the village contract. Our client chose to share the letter with her family so that everyone was aware of the terms of the village contract and wouldn’t get any nasty surprises in the future.
So what should you do?
We recommend that you read our ‘Retirement Villages – What to Know’ e-brief which will highlight what you should be looking out for in a village contract. If you have any reservations or simply want someone to take you through the contract, we are happy to help. We will meet with you to advise you on your rights and obligations, as well are provide written advice that you can refer back to later. We can also introduce you to appropriate financial advisers who can review the financial aspects of the contract and advise you on your financial circumstances.
For more information contact the Property, Commercial and Finance Team: